Atasi Sarkar is a second-year B.A. Economics student at Jindal School of Government and Public Policy with interests in econometrics, development economics and technology. She is also a member of the editorial department of Arthaniti - JGU’s Economics society.
Credit: iStock/Tuncay GÜNDOĞDU
The debate concerning what truly impacts the development of a country has been ongoing for the past few decades. Academic scholars believe there are two opposing pillars that determine the prosperity of a nation: Geography and Institutions. Geography refers to the natural conditions of a region such, as but not limited to the climate, temperature, weather, natural disasters, landscapes, natural agricultural capacity, soil conditions, and diseases. Whereas institutions refer to the rules of the society created and enforced by the people such as, but not limited to gender discrimination, caste discrimination, racism, apartheid, colonisation. In this post, I will argue that institutions hold more significance in determining the economic development of a country in comparison to its geography.
Economist Daron Acemoglu, in his paper, argues that political power gives rise to political institutions which create economic institutions impacting economic performance and future distribution of resources. Let us take the natural experiment of North and South Korea. 1945 marked the end of Japan’s hold on Korea and the beginning of the Soviet and US occupation of North and South Korea respectively. The Soviet Union operated under a communist regime whereas the United States upheld a democratic approach to politics and a capitalist approach to the economy. Thus, the stark differences between North and South Korea were created.
This supports Acemoglu’s claim that political ideology constructs the economic structure of a nation as North Korea currently operates under a centralised command economy controlled by the dictatorship of Kim Jong-Un. If GDP in US$ is taken to be the unit of measure for economic development, then South Korea, at $1.65 trillion, has left North Korea behind at $11 billion in 2019*. This implies that if we hold all else constant, like we have with geography in this and only change the political institution, economic development is heavily impacted as a result. Furthermore, it supports this author’s claim that institutions can be a driving force in the physical division of people and determine the nation’s economic growth.
However, one can argue that the separation of the people of Korea to North and South was neither a result of political or economic ideologies, but rather a result of the same held by people in power during and after the war. This begs the question: Do citizens following a particular political ideology reside in that country willingly, knowing the limitations that are accompanied by said ideology?
A simple answer would be ‘no’. Following the context of North Korea, their law states that “those attempting to leave the country without permission could be killed on the spot or publicly executed”. Since, a dictatorship infringes on an individual’s human rights, it would not be unreasonable to believe that people would not voluntarily live there and only do so because they are born there. Hence, it is not the individual’s political opinion that drives them to migrate or stay in a place that aligns with the same, but rather the beliefs of the political authority in the power of the country the individuals are born under.
This author claims that political institutions transcend geographical and national boundaries. Let us take the case of the British Empire. In the 16th century, the British made their first efforts to settle overseas and by the end of the 17th century, they controlled colonies across the globe, creating the British Empire. All these places have wildly different geographies from tropical conditions in the Caribbean and West Indies to the temperate climate in North America. But they were ruled by the same overarching political ideology of the British monarchy. Physical separation and migration of people or communities across geographies during this time can be simplified to Europeans voluntarily moving to North America to form settlements and the involuntary movement of residents of British colonies in Africa to North America in the form of slave trade. This is similar to the case of North Korea in the sense that individuals born in places under the British Empire who were not European, or elites will be forced to live under the harsh political institutions specifically created for them by the authorities. Where it is different from North Korea is in the sense that this political regime has led to the active movement of people around the world and thus supporting this author’s claim that institution transcends geographies.
If geography was the principal driving force of the prosperity of a country, then rich countries that were colonised should still be rich post colonisation. The economic impact of colonisation on both ends of power has been observed and termed ‘The Reversal of Fortune’. When the British went to countries that would become its colonies, they were richer than the British Empire and when they left, the countries’ natural resources and treasuries had largely been transferred back to British markets to benefit the crown and the elites residing in its colonies. When the Europeans dispersed around the British colonies, they created and upheld different sets of institutions that would protect them both politically and economically and disadvantage the rest of the population in comparison to the elites. These discriminatory institutions ensured that there was no limit to the power the elites held over the natives and therefore, the colonies of European settlers in North America had a higher propensity to attract investment and economic growth compared to that of the Caribbean, Africa and India. In light of this, this author believes that even though geography plays an essential role in determining the natural resources of a region or country, it is bested by the rigorous institutions built on the political agendas of the elites in power who decide what to do with said resources as we have seen that institutions tend to favour the ones who create them.
In conclusion, this author belives that institutions can be powerful enough to result in physical separation and large-scale migration of people across geographies resulting in varied rates of economic development. This is supported by the natural experiment of the division of Korea to North and South where contrasting political institutions are being implemented across the same geography. The institutions that were followed by the two halves were heavily influenced by the communist and democratic interventions of the Soviet and the US respectively. The economies of the separated nations were impacted accordingly by their corresponding political ideologies as the former followed a centralised command economy and the latter followed a free market economy. Furthermore, the British Empire was a case where the same political institution was enforced across vastly different geographies which required the migration of the Europeans and the natives of the colonies in order to be maintained. Therefore, political institutions which determine economic institutions of a nation hold more significance than its geography. And why is this important? The insistence of China’s ruling party (Communist Party of China) on reunifying with self-ruling Taiwan is an example of country leaders attempting to influence political institutions of other nations with their own across geographies. Furthermore, liberalisation of the Indian market was led by the political institution of the UPA government post-British colonisation which determined how our companies performed in the global market and aided international trade routes. As we are bombarded with more news than ever before and the world faces more wars, famines, and disasters, it is important for one to pause and evaluate the political institutions, their ideologies and execution in order to form judgements about the economic condition of a country.
*This author has chosen GDP figures of 2019 instead of the ones from 2021 so that the coronavirus pandemic does not factor into this analysis as it was a sudden and unanticipated hit to the economies and development to countries all around the world.
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